Youku Tudou Narrows Second-Quarter Loss

Prospects are upbeat as more Chinese watch online videos on multiple screens.

Youku Tudou narrowed its loss in the second quarter, and the Chinese online video company believes the outlook is positive, as consuming video on multiple screens becomes the standard in China.

Quarterly revenue rose 30 percent from the year-ago period to 753.5 million yuan ($122.8 million), Youku Tudou said, while the group also registered a smaller loss of 105.1 million yuan ($17.1 million).

Youku Tudou was formed by the merger last year of China's two biggest video websites and arch rivals, Youku and Tudou, who agreed to set aside their differences to join up and become the most competitive player in an industry that's growing rapidly.

Both Youku and Tudou started out copying the business model of the banned YouTube in China, but in recent years it has focused on providing licensed content, which is good news for Hollywood and other overseas firms eager to access the China market.

The group's gross profit was 190.2 million yuan ($31 million), an 87 percent increase on the prior year.

"With users watching Internet videos on multiple screens becoming the standard in China, Youku Tudou is at the center of exciting growth opportunities for the long term," said Victor Koo, chairman and CEO of Youku Tudou.

Koo said that mobile traffic was growing ahead of expectations while daily video views grew more than 100 percent in the last six months.

Looking ahead, the company said they expected net revenues in the third quarter to consolidate between 830 million yuan ($135.5 million) and 870 million yuan ($142 million), with net advertising revenues contributing between 740 million yuan ($120.8 million) and 770 million yuan ($125.7 million).

China is the world's largest Internet market with 591 million users, and last year saw a 20 percent rise over the past year in the number of people who surf the web on smartphones and tablets.

In the second quarter, content costs were the equivalent of 37 percent of net revenues, up from 25 percent in the same period last year. Youku said the increase was due to content purchased in 2011 that is reflected on this year's balance sheet.

"We are leveraging our top-of-mind video brand awareness, comprehensive content library and cross-screen product functionalities to extend our leading presence across different screens," said Koo.

Youku Tudou president Dele Liu said more effective sales had boosted revenues, and there were more cost synergies as integration between Youku and Tudou was completed, resulting in significant margin improvement.

"We remain committed to building our user-generated content ecosystem and leveraging our original content production capabilities to differentiate Youku Tudou and support our content marketing solutions."

Consolidated advertising net revenues were 726.6 million yuan ($118.4 million), which the group said was in line with their previously announced guidance.

"The growth was primarily attributable to the increased use by brand advertisers of our advertising services as evidenced by an increase in the number of advertisers and the rising average spend per advertiser," the company said.